States Think Big on Health Reform

Stateline.org highlights significant state policy developments and trends each year in its State of the States report, which will be available in early January. In the second of a series of excerpts from the publication, we look at state health care policy.

Massachusetts has accomplished the improbable: It got Democrats and Republicans to agree on how to provide nearly every resident with health insurance. And it did so without boosting taxes or pushing aside private health plans.

 

Spearheaded by outgoing Gov. Mitt Romney (R), the compromise marks a marriage of competing visions for health care reform shaping state policies around the nation. Democrats stress the need to move toward health coverage for all. Republicans promote putting consumers in control. What Massachusetts did was to fuse these philosophies.

 

While Massachusetts is hailed as a trailblazer, even states with less ambitious goals are setting out to repair the country’s broken health care system. The changes go beyond taxpayer-funded Medicaid programs for the poor and disabled. States are expanding medical coverage for the working uninsured, rewarding patients who develop healthy habits and prodding private industry to offer greater health benefits.

 

States feel the brunt of spiraling medical costs in their bottom line. Plus, there’s powerful political pressure for states to address the problem of the uninsured. The Census Bureau found that nearly 47 million Americans – one in six – went without health insurance in 2005. When it began keeping track in 1987, 31 million Americans – fewer than one in eight – lacked coverage.

 

Massachusetts’ new policy aims to cover 460,000 uninsured residents by July. Some 106,000 are already eligible for Medicaid care but weren’t enrolled. Another 150,000 will get help buying a private health insurance policy, subsidized by a portion of the $1 billion the state now uses to reimburse hospitals for charity care.

 

The remaining 204,000 must buy private insurance through their employers or through a new state agency. That group includes many uninsured workers who consider private coverage too expensive or who are young, healthy and willing to risk going without. They will face tax penalties if they don’t buy a policy: loss of their personal exemption, and by 2008, a penalty equal to half of what health insurance premiums would have cost. Employers who don’t provide health insurance will face annual penalties, too – $295 per

worker.

 

A new state agency – the Commonwealth Care Health Insurance Connector – will create a market for private insurers to compete for the new customers and offer benefits otherwise tough to find. For example, a seasonal worker could keep the same plan all year, even if he’s working for two different employers, building houses in summer and plowing roads in winter.

 

Workers using the Connector can pay for coverage with pretax dollars, giving them the same tax benefits as workers with employer-provided insurance.

 

“I think one of the things that came out of Massachusetts, which is in the air in many state capitols and hopefully here in Washington (D.C.), is the incredible sense of compromise that they were able to pull off,” said Alice Burton, director of the Robert Wood Johnson Foundation’s State Coverage Initiatives.

 

At a signing ceremony in Boston’s historic Faneuil Hall last April, Romney called the result a once-in-a-generation feat achieved “without a government takeover and without raising taxes.” The former businessman, who is mulling a White House bid in 2008, hopes the Bay State’s health care plan will be a signature issue.

 

Of course, it could fall apart when Massachusetts residents who are voluntarily uninsured are forced to buy coverage or face tax penalties. It would not be the first health-care reform attempt to backfire. In 1988, Michael Dukakis, then governor of Massachusetts and a Democratic candidate for president, signed a “play or pay” law that required companies with six or more workers to offer health insurance or pay a $1,680 tax for every worker. But after he lost, lawmakers in Boston repealed the mandate before it took effect.

 

The task of covering the uninsured is easier in Massachusetts than in most other states. Its 10.7 percent uninsured rate already is one of the lowest in the country.

 

But other states are trying to close the gap, too. Soon after Massachusetts adopted its plan, Vermont’s Republican Gov. Jim Douglas and the Democratic majority in the Legislature took similar action.

 

The Vermont approach shares many elements with Massachusetts’ reforms: premium assistance for the working uninsured, enhanced Medicaid benefits and an opportunity for all residents to buy insurance through the state, at premiums ranging from $60 to $135 a month. It also penalizes businesses that don’t offer health insurance.

 

Vermont hopes to cut costs by encouraging diabetics and heart patients to keep up with treatment. And it wants to allow HMOs to give discounts to policyholders who quit smoking or take steps to address chronic conditions. Maine’s Democratic Gov. John Baldacci is rethinking how to pay for a year-old program designed to move his state toward universal coverage.

 

When the Dirigo Health initiative was launched in 2005, Baldacci argued that savings from driving down health costs could be used to insure more residents. But health insurers say he overestimated the savings. They sued when the state tried to collect $44 million it claims to have wrung out of the health care system. The court challenge failed, but newly re-elected Baldacci has agreed to take another look at how to fund the program.

 

Expanding health care coverage is a big issue in many state capitols:

 

• After narrowly winning re-election, Minnesota Gov. Tim Pawlenty (R) challenged the Democratic Legislature to extend health benefits to more than 70,000 uninsured children. He also signaled he was open to a Massachusetts-style mandate that all residents be insured.

 

• California Gov. Arnold Schwarzenegger (R) promised to make access to health care a major focus of his second term after vetoing a move by the Democratic-controlled Legislature last year to jettison private health insurance and switch to a government-run health system for all. “Socialized medicine is not the solution to our state’s health care problems,” Schwarzenegger wrote in his veto message. Labor unions that supported the state takeover, including the Service Employees International Union and the California Nurses Association, have vowed to bring the issue before voters in a 2008 ballot initiative if Schwarzenegger fails to act.

 

• Illinois Gov. Rod Blagojevich (D) rolled out his AllKids initiative, which lets parents buy coverage from the state for their children, even for illegal immigrant children who are ineligible for Medicaid. The price depends on the parents’ income. Blagojevich has stressed that AllKids allows parents of all incomes whose children have chronic diseases to buy coverage that might be unaffordable in the private market.

 

• Pennsylvania Gov. Edward Rendell (D) convinced his Legislature to adopt a comparable Cover All Kids initiative, and Wisconsin Gov. Jim Doyle (D) is backing a similar plan. Democratic Govs. Bill Richardson of New Mexico, Kathleen Sebelius of Kansas and Christine Gregoire of Washington state also called for universal coverage of children.

 

• Michigan Gov. Jennifer Granholm (D) is seeking federal approval for her $1 billion plan to use Medicaid funds to help Michigan’s uninsured buy private health coverage.

 

Despite these efforts, the number of uninsured children grew in 2006 for the first time since Congress launched the State Children’s Health Insurance Program (S-CHIP) in 1997.

 

The program helps states cover uninsured children living in families who earn too much to qualify for traditional Medicaid. In 2005, more than 8 million children and teens under 18 were uninsured. But aggressive expansions of health care can have pitfalls.

 

Tennessee built up its Medicaid coverage greatly in 1994. But by 2005, Gov. Phil Bredesen (D) had to cut 170,000 enrollees from the TennCare program because of perennial budget overruns. Bredesen assailed the program as “too expensive, too rigid, too hard to control.”

 

TennCare had been a model for S-CHIP. It began as an experiment to help working families who could not afford private insurance. The idea was that, by aggressively managing their care, TennCare could cover far more people for the same dollars spent on Medicaid. But the program covered the sickest people, making them more expensive to insure.

 

The program encountered large overruns from the start and grew to consume a third of Tennessee’s budget.

 

After pushing through cuts in TennCare, Bredesen, a former health insurance executive, championed his own Cover Tennessee initiative, designed to give working families access to basic medical services. The voluntary program emphasizes personal responsibility – people get a break on premiums if they stop smoking or lose weight.

 

The federal government gave a boost to healthy living initiatives in the Deficit Reduction Act of 2005. It allows states to increase benefits for Medicaid clients with healthy lifestyles, an emphasis meant to improve both patient’s health and states’ bottom lines. As a result:

 

• West Virginia now makes people in a Medicaid pilot program agree to follow such simple rules as showing up for doctor’s appointments and getting their children immunized. If they comply, they qualify for extra benefits, such as mental health services and greater prescription drug coverage.

 

• Kentucky plans to offer expanded benefits for patients who faithfully follow disease-management programs. For example, someone who keeps up with treatment for asthma or obesity could earn credits toward dental and vision care.

 

• Idaho offers Medicaid recipients a medical savings account. Healthy behavior can earn them money to cover smoking-cessation or weight-loss classes, among other things.

 

• In a pilot project in two Florida counties, Medicaid beneficiaries with healthy habits can earn up to $125 a year toward over-the-counter medicines and other medical supplies.

 

Florida, in addition, is at the forefront of a drive to make Medicaid programs work more like private health insurance.

 

It requires Medicaid patients in a two-county pilot program to pick an insurance package from among competing private plans. The state pays the premiums and eventually plans to pay private insurers more for costly patients, such as the elderly and disabled, than for healthier ones.

 

Three out of five Americans receive health insurance through their employer, but that number is slipping. States are trying both carrots and sticks to slow the trend.

 

Arizona, Kansas, Montana and West Virginia recently began offering tax credits to small businesses that offer insurance to their employees. Arkansas, New Mexico and Oklahoma offer small businesses and the uninsured the chance to buy discounted coverage through the state.

 

On the other hand, in a move aimed at Wal-Mart, the Maryland General Assembly passed legislation last year to require large employers to contribute certain amounts toward employee health benefits. The Democratic-controlled Legislature overrode Republican Gov. Robert Ehrlich Jr.’s veto, but a federal judge invalidated the so-called “fair share” measure, which had been pushed by organized labor.

 

Hawaii, the only state with an employer mandate, has required most businesses to offer health benefits since 1974. Still, 9 percent of its residents are uninsured. In the past, Massachusetts, Oregon and Washington state passed employer mandates only to rescind them before they took effect.